No matter how helpful the government could potentially be to its citizens, it typically won’t/can’t get involved in finance because there are huge lobbying dollars behind financial services companies. For example, it would be relatively trivial for the IRS to create a free, online, auto-filing system that would work for most taxpayers, increase tax collections, and be a win-win for everyone involved. Everyone, that is, except for TurboTax, who, obviously, spend millions of dollars each year keeping such a system away from its lucrative tax software business.
This is why I was surprised to find out about myRA, a no-cost government Roth IRA program aimed at people who might otherwise have a hard time getting started saving for retirement.
What Is myRA and Is It Safe and Legitimate?
The myRA account is a government run Roth IRA. As such, it follows all of the same rules as a regular IRA. There is a maximum Roth IRA contribution amount allowed each year. This year, it’s $5500, with an additional $1,000 “catch-up” contribution allowed for people 50 or older.
So, what’s the benefit of using the myRA program?
The myRA IRA has no start up cost, no IRA annual fees, and just as important no minimum contribution or starting balance. So, you can literally start saving $2 per month, if you like. The idea behind the program is to overcome the initial obstacle so many people have where just getting an account started is too costly, too much work, or too confusing. To sign up for a myRA, you just need a Social Security Number, a Driver’s license, and the name and date of birth of someone to be the beneficiary on the account — that’s who gets the money if you die.
One key difference between the myRA and other IRAs is that there are no investment choices in the myRA. All funds are deposited into the Government Securities Fund, which is a risk-free fund of U.S. Government Treasuries. This fund is very much like the Government Securities Fund available in the 401k plans of government employees. This fund has historically earned just over 2%. For people just getting started for retirement, this is a good way to get started. Most funds or investments in an IRA require a minimum investment, but with myRA, you can literally start with $1 and still earn better than a savings account.
As a Roth IRA, you can withdraw your contributions (the money you put in) at anytime without taxes or penalties. That makes using your Roth IRA as an emergency fund a good way to put money aside for retirement, while still having savings available if you ever need them. Note: You cannot withdraw the earnings (interest) until you are 65, or you will pay a penalty and taxes on the withdrawal.
To contribute to a myRA, you can setup a payroll deduction with your employer, or link it to a checking account. From there, you can initiate regular, recurring transfers, or one-time contributions. According to the website, you will also be able to directly contribute from your tax refund on Form 1040 by sending your refund to a myRA account instead of getting the money back as a check or ACH deposit.
Before you go worrying that the government is actually going to start standing up to the financial industry in order to make things easier for citizens, don’t fret. The myRA comes with strict limits that ensure it will only be used by those that the banks and brokerages can’t profit from. The maximum balance allowed in a myRA is $15,000. After that, you have to transfer it to a private-sector Roth IRA account.
Overall, the myRA is a great way for people without a 401k plan to get started saving for retirement right away.